Jeremy Corbyn and John McDonnell are suddenly accountable for everything they do and say. But can ‘Corbynomics’ live up to its promoters' promises? Karim Palant punches the numbers.
The appointment of John McDonnell in his key role at Jeremy Corbyn's side shows the new Labour leader believes he has a mandate for 'Corbynomics' -- and intends to use it. But what exactly is Labour's economic agenda now? And will it, as the shadow chancellor's Who's Who entry suggests he'd like, ferment [sic] the overthrow of capitalism?
Corbyn did not expect to lead Labour, so the most important fact about Corbynomics is that it does not exist. There is no worked-out economic plan that the 'Corbyn' wing of the party had waiting for this moment. There are instead two unquestioned truths held to be self-evident by the new Labour leadership team.
The first is that Labour lost the last election because it did not sufficiently oppose 'austerity' or argue loudly enough that Labour spending was not to blame for the deficit. However, polls show that those who did not vote Labour in 2015 feared that Labour would 'spend too much'. You might think, therefore, that promising more spending and arguing that Labour believe they have no lessons to learn on spending is counterintuitive. Corbyn doesn't.
The second is that a 'neo-liberal' consensus has gripped British politics since 1979. This is reckoned to explain weaker workplace regulation, lower public spending and taxes for the wealthy and corporates, financial sector regulatory failures, privatisation and market-based public service reforms. Neil Kinnock, Nigel Lawson, David Cameron, Gordon Brown and all major media outlets apparently share this consensus.
These are the fundamentals on which policies are judged, which have emerged in a haphazard fashion. The desire to talk nationalisation is only partly born out of nostalgia; profits 'leaking' out are blamed for high prices, so regulation alone is not enough. We know some nationalisations may be proposed, such as of the rail operators, which we are told will be cost-free as franchises can be brought in when existing contracts run out.
But having botched it in the last parliament, this government will certainly reissue fifteen-year rail franchises. Corbyn will have to choose expensive contract buyouts or rail nationalisation around the time of his 86th birthday.
McDonnell, meanwhile, has floated reversing without compensation George Osborne's sales of RBS and Lloyds shares. The effect -- on confidence in the UK and directly on pension funds -- would be severe, but RBS share sales are planned annually over the parliament, so even if he seeks to drop this proposal quietly, the questions won't go away.
Despite talk of nationalising energy companies, the plan is that community and local renewables generation would 'break the monopoly of the big six'. How realistic this is given that Germany -- the exemplar cited -- is maintaining dirty coal well beyond the UK's plans is open to question, and expectations have been raised of a more full-throated takeover.
On spending, Corbyn says accusations of 'deficit denial' are a misconception. But he argues the deficit should not be eliminated using any spending cuts at all. Instead there are two main routes. First, the economy must grow much more quickly than even the forecasts for the rest of the Parliament (which are steady) predict; for this Corbyn's plan is simple. He says: 'One option would be for the Bank of England to be given a new mandate to upgrade our economy to invest in new large-scale housing, energy, transport and digital projects: quantitative easing for people instead of banks.'
This 'People's Quantitative Easing' would involve giving the funds to a vehicle like a national investment bank. If the Bank of England governor refuses to do so, he should be on the 'next plane' (presumably back to Canada), according to Richard Murphy, the guru of Corbynomics.
Whether those funds would ever be paid back is unclear, so we don't know whether this is just an unnecessarily complex way of the government borrowing money -- or the government ordering the Bank of England to print money and spending it. It is hard to argue this wouldn't increase government borrowing costs and inflationary pressures more significantly than if the government funded this investment bank using conventional borrowing. Bizarrely, despite Corbyn propagating the myth that Labour lost due to not opposing 'austerity' enough, this fudge on 'PQE' seems designed to avoid arguing explicitly for additional borrowing.
On tax, by contrast, we see none of this squeamishness. Corbyn argues: 'Paying tax is not a burden, it is the subscription we pay to live in a civilised society.' The other half of his plan is made up of an attack on £93 billion of 'corporate welfare' and a determination to 'tackle' the supposed £120 billion in unpaid tax.
The first is a catch-all that includes capital allowances for manufacturing investment and R&D or green technology tax breaks. Around £40 billion is taken in corporation tax -- so £93 billion more would be equivalent to a tripling of the tax take from profits. Even if the resultant fall in investment were a price worth paying, targeting the hit at those businesses that invest for the future is perverse.
Meanwhile, the enormous figure for avoidance was pulled apart by Jolyon Maugham QC so successfully that Murphy admitted the real figure was £20 billion -- but there is still no hard plan that will even deliver numbers on this scale. The position on corporate tax was in even more confusion within a week as McDonnell's new shadow Treasury team let the latest cut go through unopposed. And this is before the various spending pledges made are fulfilled.
Corbyn spent three decades believing Labour ignored a whole suite of policies because of the mythical 'neoliberal consensus', and so now he is in the limelight he is bound to argue for them. But he will soon see that these mount up. As a result he has significant tax rises in mind: a 2 per cent corporation tax rise for more adult education; a 7 per cent NI increase on earnings over £50,000 to scrap tuition fees; universal child care 'pays for itself'; there will be pension increases of £22 billion and £10 billion of free social care -- funded by 'talking about tax' -- meaning perhaps a 6 per cent increase in the basic and higher rates of income tax.
Despite embracing the political and economic risks entailed in radical tax rises and nationalisation policies, there is nothing fundamentally different here -- it's just boilerplate social democracy, albeit the expensive sort. It is not even particularly progressive to prioritise tens of billions of spending on wealthy graduates, pensioners and train commuters.
If the reason previous leaderships didn't make these promises was ideological weakness, then you may see all this as a radical break. But to accept that Labour's past approach was just as principled but dealt with the real, achievable world -- and focused help on those who needed it -- would be to shatter the two unquestionable truths of Corbynomics.
But that's exactly it. For all the noise, Labour is not embarking on a radical new approach. All that is happening is the bad habits of the past of uncosted pledges and gesture politics risk coming back. John McDonnell isn't going to overthrow capitalism -- he's just a very naughty boy who says provocative things. If the Corbyn project is to work, it must combine a more disciplined approach to policymaking with genuine radicalism. It is harder than it looks from the backbenches.
Cartoon by George Leigh